Virtual Conference Day 2, Session 4: Can mobile banking be used to collect loan repayments and deposits?

by Guest Blogger : Thursday, September 9, 2010

Welcome to the last session of our 2-day virtual conference!  The conference is taking place right here on the blog, no registration is required. Just post your comments using the “Leave a reply” option at the bottom of each thread.

This conversation is moderated by George Kinyanjui.  George is a consultant and supported SMEP (Small and Micro Enterprise Programme), an MFI in Kenya, as they linked to M-PESA for loan repayments.

In the course of the last two days, we’ve heard from a variety of practitioners discussing opportunities and challenges of using m-banking services in different ways.  For our last session, we’ll discuss one of the most obvious uses of m-banking – allowing clients to make repayments via an m-banking service.

SMEP’S EXPERIENCE WITH M-PESA
Since 2007, I have been working with SMEP on the introduction of a mobile repayments system.  SMEP was the first MFI to link into M-PESA for group loan repayments in 2009. We found that although in some ways m-banking is about new technology, the time and effort we invested in technology was only about 30% of the whole project. The biggest challenge was how to take our customers from their early experimentation with the service to a point where they truly can understand the value it can bring them and feel comfortable operating it.

We knew that allowing groups to repay via M-PESA would impact the group cohesion and we worked carefully to ensure this impact was positive. Although clients repay using M-PESA prior to the group meeting, the meetings themselves are still mandatory.  The meetings are much shorter than they used to be since the emphasis is not on collecting cash.  Instead, loan officers can focus immediately on any repayment issues or business problems the clients wish to discuss.  The officers can now accommodate more groups in one day. Clients are happy since they can make repayments whenever they want, group meetings are shorter and there is more security.

The result for SMEP has been very positive – repayment rates have actually improved since clients started repaying with M-PESA!  Today, about 70% of loans are being repaid with M-PESA.  SMEP will with time pass on the benefits of reduced expenses and increased efficiency to the clients in the form of cheaper loans.

PRODUCT
For those MFIs who do offer individual loans and deposits, it’s probably easier to start with these products.  Since the key relationship is between the individual and the institution, there is no risk that using an m-banking service will negatively impact repayments.  SMEP started offering individual loans and is currently transforming into a deposit-taking institution and it will integrate m-banking repayments into these products.

CHALLENGES
There are challenges to loan repayments using an m-banking service.  Clients sometimes complain that agents run out of e-float when they are ready to deposit cash.  Loan disbursement would be challenging for this reason – the amounts are larger and agents frequently run out of cash.  Also, Safaricom does charge for the service (similar to bill pay tariffs) and, in most cases, both the institution and the client pay a small fee that they previously did not have to pay.

I’m happy to answer any questions you may have in the next few hours.  I’d also be interested in hearing thoughts from those MFIs who have tried this or are considering it regarding the following questions:

1.    Have you made any adjustments to your methodology or product design to adapt to this different channel?
2.    How have factors like attendance at group meetings and repayment rate of group loans changed since the introduction of the m-banking repayment channel?
3.    How did you first introduce this to your customers?  Is the m-banking repayment channel mandatory or offered as an additional option?  What has been the reaction of customers and staff?
4.    What other challenges have institutions encountered?  Have you had any technical difficulties?

TAGS: Guest Blogger, Kenya, Microfinance, Mobile Banking, Technology

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  1. September 9th, 2010 at 9:08 am, John Owens ()

    George, hi from the Philippines. Working with rural banks in the Philippines to use GCASH to support loan repayments, we faced many of the same issues you did in Kenya. In the end, we found that loan repayments only worked for individual loan clients but I like the idea of having group loan clients pay individually before the group meeting. Do the clients share the SMS confirmation message with the group to show that they paid?

  • September 9th, 2010 at 9:12 am, John Owens ()

    With regard to the first question:Have you made any adjustments to your methodology or product design to adapt to this different channel? We did get at least one bank to reduce the cost of the service fee and interest rate for those clients who agreed to repay their loan via the bank’s text-a-payment service that we developed using GCASH. The interest rate and service fee reduction actually made repayments via this service cheaper than having a loan officer collect the loan payment even with the cash in fee charged by the GCASH cash in outlet. The bank, however, still saved money since the rebate was still slightly less than the cost of sending out a collector.

  • September 9th, 2010 at 9:18 am, George ()

    Hi, Each client has an sms sent to him/her individually. No one else can send payments except the owner of the cell phone because it is controlled by a pin number.

  • September 9th, 2010 at 9:21 am, Sarah Rotman ()

    George, following up on John’s question: are clients still motivated to attend the group meetings even though they’ve already paid? What is the incentive (or obligation) for them to attend?

  • September 9th, 2010 at 9:24 am, John Owens ()

    Yes George, we follow the same practice here in the Philippines for better control purposes. My original question was more about whether the group clients still needed to prove that they paid in advance during the group meeting (by showing their confirmation message of payment on their phone) or whether payments were now completely on an individual basis without the need to show or demonstrate that they paid during the group meeting.

  • September 9th, 2010 at 9:25 am, George ()

    The Sms is compared with a print out that the loan officer goes with to the meeting. Each client shows the loan officer the message they received and that should tally with the print out. Each member of the group thus gets to know who has paid and who has not.

  • September 9th, 2010 at 9:29 am, George ()

    We have not made any changes to the methodology or product design. The client sends their repayment to the MFI via mpesa and the MFI picks that information and uploads to the clients accounts automatically on the loan tracking and accounting software. Safaricam charges a fee from the client and a smaller fee from the MFI for the transaction.

  • September 9th, 2010 at 9:32 am, Claudia McKay ()

    George, now that collecting money is no longer a part of the group meeting, what is the time in the group meetings spent on? Are the meetings shorter, less frequent? Or are they the same length/frequency but the time is spent on discussing other topics?

  • September 9th, 2010 at 9:35 am, George ()

    Initially we had a issue with attendance of group meetings. We introduced an incentive of having less group meetings for the groups that are paying promptly and meeting as required. We also told the clients that on the second loan the loan officer will use the group meeting register and the repayment history to qualify the next loan. We have no more problems with attendance

  • September 9th, 2010 at 9:39 am, John Owens ()

    George, when you say that the client sends their repayment to the MFI via MPESA and the MFI “picks up that information and uploads it” does that mean they get the payments via SMS on a mobile phone at the MFI and then manually upload it to their loan tracking and accounting software? Is this done at each branch or at one central office? Does this still save time? Rural banks follow a similar practice and have found this to improve efficiency.

  • September 9th, 2010 at 9:39 am, George ()

    Yes the clients show that they have paid at the group meetings when the sms is compared with the print out of repayments that the loan officer brings to the meeting. There is transparency among the group members about the payments. In some instances the clients forward the sms to the group chairman especially if they have an emergency and are unable to attend the meeting.

  • September 9th, 2010 at 9:46 am, John Owens ()

    George, thanks, this is good to hear. What about the third question you raised above? How did you first introduce this to your customers? Is the m-banking repayment channel mandatory for all clients, even those that do not own a mobile phone? What do they do?

  • September 9th, 2010 at 9:48 am, Sarah Rotman ()

    And can you explain how easy/difficult the integration was with SMEP’s MIS? Is this manually or automatically done between the M-PESA platform and SMEP’s platform? Was a middleware required?

  • September 9th, 2010 at 9:49 am, George ()

    The group meeting used to take upwards of three hours. Now they are twenty to thirty minutes.The officer takes ten minutes to confirm payments. Five minutes to find out who requires another loan and issue loan application forms for successful clients. Five minutes on Product education since SMEP is diversifying its products and another five to ten minutes on AOB. The groups that meet regulary as required and are consistent in their repayments are graduated to bi-weekly meetings then tri-weekly and finally to the target of having a once a month meeting. The once a month meeting idea is a powerful incentive.

  • September 9th, 2010 at 9:57 am, Pranav ()

    While the front end and customer interface seems great, am keen to understand the backend- what kind of reports can be generated for management decisions…delay in payments, how many, how much, how long.
    Can this arrangement also facilitate other transactions beyond loan repayments? Can we look at premium payment, in case the MFI gets into insurance distribution, and also settlement of claims?

  • September 9th, 2010 at 10:00 am, Kabir ()

    Hi, George and John, it is great to have both of you online. I have a question for both of you about donor involvement in this space. Where do you think donors need to get involved especially with grant funds? Should they support mobile network operators to roll-out M-Pesa-like services, or should they support MFIs to link up to those services? Perhaps donors don’t need to do anything as MNOs are rolling-out these services anyway and, as we have seen in Kenya, MFIs are linking-up with or without support.

  • September 9th, 2010 at 10:06 am, George ()

    I looked at the performance of different branches in regard to PAR. Then chose one branch where I began sensitization on the shift of microfinance towards technology to ease the enormous amount of paper work. The mobile phone here in Kenya is a must have. When the clients learnt that they will be using their phones to repay their loans, it became a fashion. Clients felt `hot` using the cell to send money. The older generation were apprehensive but due to peer pressure at group level they too came onboard. I used other technologies that the government had introduced in the monetary system control that were mandatory and told the clients the MFI was going the same route. Ultimately the client will be monitored by the system as opposed to the loan officer. It made them important to be known by phones and computers.

  • September 9th, 2010 at 10:09 am, George ()

    The clients who do not have phones I advised them to buy a SIM card and they can then use someone else’s phone to send their money as long as they use the correct group code and client account number.

  • September 9th, 2010 at 10:10 am, John Owens ()

    Pranav, we are just starting to rollout and offer microinsurance and see the ability to accept insurance payments as well as settle claims via mobile money very similar to the approach banks now take in using mobile money to accept loan payments or make loan disbursements. We are just starting this now and will be rolling it out over the next year. If you like to receive updates, please feel free to subscribe to our RSS feed on the RBAP mobile phone banking blog at http://blog.mobilephonebanking.rbap.org/

  • September 9th, 2010 at 10:12 am, John Owens ()

    Thanks George, we also advise clients to at least purchase a SIM and then borrow someone else’s phone if they don’t have one. When you say the clients need to use the correct group code and client account number, is this something special on the MPESA menu or is this a separate SMS the client sends?

  • September 9th, 2010 at 10:13 am, Lauren Braniff ()

    To Sarah and John’s questions about the back-end processes, I think this is a really critical point. John, it’s interesting to hear that even when the MFIs receive the payments via SMS and then enter in their system, this still saves time. Do the rural banks have plans to create a more automated process between their loan tracking/accounting systems and G-Cash? I know Safaricom offers a report download that then MFIs can use to manually enter the information in their system. This seems a bit cumbersome. Has SMEP or other MFIs managed to automate this interface between the MNO/m-payments service and their back office system?

  • September 9th, 2010 at 10:19 am, George ()

    The interface ( Bridge) between Safaricom wesite and SMEP MIS was written by one of the trainers who implemented SMEP MIS. There were issues as one would expect with software where hiches between uploaded data and the generated reports had errors. These have been largely eliminated but as the Safaricom website continues to populate, there is the need to upgrade servers and have dedicated paths for the flow of data. There was a time when the data downloaded from the Safaricom website was verified at group level and keyed into the system manually. This of course brought in issues of audit trail, errors of omission, etc.

  • September 9th, 2010 at 10:20 am, George ()

    It is now possible to purchase off the shelf bridging software depending on your choice of the accounting and tracking package.

  • September 9th, 2010 at 10:22 am, John Owens ()

    Kabir, you asked – Where do you think donors need to get involved especially with grant funds? Should they support mobile network operators to roll-out M-Pesa-like services, or should they support MFIs to link up to those services? – I think donors can play an important role similar to the approach USAID had here in Philippines helping rural banks to come up with mobile money solutions that could be used to facilitate access to banking services. The best thing that donors can do is to support networks that can effectively work with multiple MFIs effectively such as RBAP here in the Philippines. After these banks have now processed more than US$150 million in mobile phone banking transactions via GCASH, you can see how useful and successful a little bit of donor technical support can be. Other potential groups include MicroSave, ACCION International, Grameen Foundation, and Planet Finance

    I wrote about this last year with MicroSave at http://www.rbapmabs.org/blog/wp-content/uploads/2009/02/BN-70-Pilot-Rollout-Strategies-for-M-banking.pdf

  • September 9th, 2010 at 10:27 am, George ()

    Hi Pranav, good question. The reports are generated from a reporting tool that gives a wide range of reports: the delay in payments and the amount, how delayed as in 30, 60 or 90 days. There are indicators about gender, enviroment, PAR, etc.

    The arrangement can be configured to accommodate other transactions as well. It is advisable to separate the transactions and have a consolidation module to generate the management reports.

  • September 9th, 2010 at 10:32 am, John Owens ()

    Lauren, we found tremendous savings and a lot less errors using text-a-payment than the old system of counting money in the field, bringing it to the bank to have the cashier count it again and then enter it into the system as there were multiple errors and risks of fraud, theft, or just plain old errors associated with physically counting money multiple times. Getting one SMS and/or a full list of transactions that could easily be checked and entered into the MIS system is much more efficient than in-the-field collections or even over-the-counter cash transactions. We are now working with a few banks to help them integrate this into their back-end systems but this is just for the larger banks that have the capability and resources to handle this. For small rural banks or MFIs with a few thousand clients who might be willing to use a mobile payment channel, the costs and improvements of using a modem or even just a phone to collect payments is still a major improvement over the past method.

  • September 9th, 2010 at 10:40 am, Felistas Coutinho ()

    Dear All,

    Tujijenge Tanzania started pilot testing with their individual clients and it was mandatory for them-at least for those taking loan sizes below $2000 as the transaction fees were on average less than travel costs to the office-those that took loans above $2000 were free to choose (We have very few of these). The payments would come in directly through to our system but would need to be uploaded manually which gave way to errors and sometimes double posting if the message would be sent twice. This lead to our investing in building an interface which took us a couple of months with the service provider support and now for about a month the paid up amounts are in a format where they are automatically loaded to the system at the end of day just like our tellers get updated daily which is making life much easier. The service is optional to our group members. The main challenge our clients face as well is inadequate liquidity at the agents.

  • September 9th, 2010 at 10:40 am, George ()

    Hi Kabir, great to read from you! Donor funds should and would be best utilized in my view in helping the MFI to come up to speed with mobile payments. There is work to be done before an MFI can go mobile. If the MFI is not wholly ready the system becomes a bother to the employees. There are requirements that have to be done to ascertain the readiness of the MFI to use the mobile payment system. MIS, infrastructure in computers, servers, appropriate systems, policies, process mapping, financial modeling are some of the other work that goes into implementing a mobile payment system. Most MFIs do not have budgets for this. Donors need to do something about this. MNOs will roll out anyway.

  • September 9th, 2010 at 10:44 am, Sarah Rotman ()

    Hi Felistas: Great to hear your experiences from Tujijenge Tanzania! How have group members responded to this new payment option? Do you think there’s a risk of eroding the group dynamic?

  • September 9th, 2010 at 10:44 am, George ()

    Hi John, the group code and client code are SMEP specific and help to identify a client in the MIS. I came up with this when I realized that there are groups with similar names and clients who share like names and originate from the same area. This tended to confuse the system.

  • September 9th, 2010 at 10:48 am, George ()

    Hi Lauren, SMEP has a Bridge between the download and the MIS. They are also upgrading their MIS and that should work when it’s done. I can keep you posted on the developments.

  • September 9th, 2010 at 11:00 am, John Owens ()

    I agree with George, MNOs will rollout services anyway, support needs to focus on MFIs.

  • September 9th, 2010 at 11:01 am, George ()

    Hi Felistas,
    Nice to hear that you have that in place. I would like to see that working

  • September 9th, 2010 at 11:02 am, John Owens ()

    Thanks George for the info about the coding of groups. Do you have anything written on this that you can share with us?

  • September 9th, 2010 at 11:07 am, George ()

    Thanks John, I agree with your statement that the best thing that donors can do is to support networks that can effectively work with multiple MFIs effectively. The flip side is that there are not that many MNOs that effectively work with MFIs. They concentrate more on P2P. If MFIs are supported so that the demand for the service is MFI-driven then the scenario would change. MFIs coould possibly ask for cheaper rates per transaction pegged on client aquisition. The Menu driven SMS could also be MFI specific.

  • September 9th, 2010 at 11:09 am, Philippe BREUL ()

    Dear All. I’d like to share experience from the field were three important factors have been identified (in Egypt and Rwanda for example):
    1- the loan repayment methodology: if the client is going to the branch to repay or deposit or if the MFI agents are going : in the first case the interest for MBanking is coming from the client when in the second case it’s coming from the MFI
    2- in both cases, the distance and related costs / risks / lost opportunities are a determinant factor (meaning you can reach further from the branch by decreasing the costs
    3- convenience is also an important factor: being able to repay / deposit at “any” time (after business hours, during WE) can be key for some clients. A related factor has been identified in Egypt: shame or reputation. In some countries, people prefer not being seen repaying loan at a branch ! It has been identified as an important factor in considering MBanking as an alternative channel
    What do you think ?
    Thanks

  • September 9th, 2010 at 11:10 am, John Owens ()

    Felistas, have you thought of working with particular agents to address the liquidity issue?

  • September 9th, 2010 at 11:11 am, Claudia McKay ()

    Mark Staehle from CARE is having trouble accessing the internet but has emailed me the following comment:
    “In early 2010 a total of 27 VSLA groups were oriented by CARE Tanzania on the use of M-Pesa as an ‘off-the-shelf’ product for safe storage of surplus funds. 20 groups have opened M-Pesa accounts so far, and 16 are transacting in them. As of June 14 groups had stored about $1,700 in M-Pesa, in 15 different transactions. Five VSLAs which had not been oriented also opened accounts after observing the activities, and one new M-Pesa Agent is being added per groups’ request. The project is now expanding modestly by orienting a further 45 VSLAs. Once the issues with use of M-Pesa as a group are well understood, the plan is to work with formal financial institutions to develop cashless products over M-Pesa: individual deposit accounts, insurance offerings and possibly credit to the VSLA as a whole. Complaints from VSLAs so far include the encashment fee (around 1.0-1.5% of the amount), agent proximity and agent illiquidity.”

  • September 9th, 2010 at 11:13 am, Joen Moth-Poulsen ()

    A question to anybody:
    Could one imagine that uploading and linking financial information (repayment record, loan statements, etc.) to the profiles of m-banking customers would automatically turn the telco provider into an informal credit bureau?
    In this case the initial obstacle for some countries that are in lack of an official credit bureau could be partly circumvented and MFIs could instead issue loans according to customers’ credit rating based on information from the telco.

  • September 9th, 2010 at 11:13 am, George ()

    Thanks John I have a package named Momitys that takes an MFI step by step from traditional banking to the next generation electronic paperless micro credit and saving. I can share that. It’s very interesting. Lets touch base on E-mail.

  • September 9th, 2010 at 11:15 am, Sarah Rotman ()

    Thanks to all our participants during this final session of our virtual conference. We discussed here one of the fundamental uses of mobile banking by MFIs – the repayment of loans and mobilization of deposits. Our moderator George shed light on his experiences with SMEP in Kenya that now uses M-PESA for loan repayments. He discussed the challenges and opportunities this provides to both groups and individual customers. We also discussed some of the technology issues that come up in linking an MFI’s MIS to the mobile operator’s system.

    As more and more operators launch m-banking systems and as more and more MFIs begin to link into them, the issues raised here will be all the more important.

    Thanks to all of our moderators and participants over the past 2 days as we’ve discussed issues around mobile banking and microfinance. Feel free to continue to comment on any of the session discussions. We’ll write a final summary of the conference and post it on the blog.

  • September 9th, 2010 at 11:19 am, George ()

    Phillipe,
    Thanks, The question is not WHETHER an MFI should go mobile; It’s WHEN. That is where Microfinance is heading for all the reasons that you wrote. I agree with you.

  • September 9th, 2010 at 11:20 am, John Owens ()

    George, when I referred to networks, I was referring to networks of MFIs not MNOs. We were fortunate to have the MNO we worked with (GXI) make changes to the STK menu to add an optional message field that allowed us to add our own key words to support financial transactions but the MNO did this based on feedback from us and the MFIs. They made changes using their own resources and those of a donor were not needed. Working and collaborating with MNOs ( if you use mobile money) is essential and requires a special partnership. That is why donor support to larger networks or effective associations of multiple MFIs is important as it creates economies of scale that can effectively work with Mobile Money Issuers whether banks, MNOs, or third party mobile money issuers.

  • September 9th, 2010 at 11:21 am, Eugene Amusin ()

    Hello from Citi in London.

    George, many thanks for your time sharing your experiences and addressing important question. MNOs are important partners to MFIs in mobile solutions. Based on your experiences, what is an optimal role of a bank in m-banking? Can banks add more value than they do now?

  • September 9th, 2010 at 11:21 am, Philippe BREUL ()

    Thanks a lot Mark for this input. It’s indeed a point to know if and how MBanking can work for groups and communities. The point mentioned by George for groups (keeping their meeting, but shorter and concentrating on other -more interesting- points then strict repayment) is very interesting. In the pilot we are preparing with Triple Jump, we’ll start by proposing / promoting the services (loans and savings) to individuals and see afterwards how it can be extended to groups and communities. Social aspects seem more important for groups and communities and a good balance with efficiency must be found.

  • September 9th, 2010 at 11:37 am, Lauren Braniff ()

    For smaller MFIs, I can see John’s point that automating the data entry might not be necessary. But it does seem that as the service rolls out to more and more clients and the MFI grows, manual entry will become unsustainable. SMEP mentioned that they now have a bridge but faced some problems initially. Can you describe? Do you have any recommendations for other MFIs looking to do the same? How has the experience of Tujijenge been in this regard?

  • September 9th, 2010 at 11:47 am, Philippe BREUL ()

    Thanks a lot Sarah and Claudia for this very interesting initiative !!

  • September 9th, 2010 at 11:48 am, John Ngahu ()

    Hi George, since using MPESA for loan repayments and deposits, have you noted any improvements in the savings culture (through increased deposits)of your clients that you can attribute to the benefits of using this technology? Also, has the data that you have gathered so far regarding individual/group loan repayments and deposits been useful in other facets of your decision making processes? If not, do you see this data being of value to you in the future?

  • September 9th, 2010 at 12:06 pm, John Ngahu ()

    Regarding Joens question about MNOs becoming informal credit bureaus, my guess is that they are now probably the best sources of financial data from millions of people who have been transacting using MM. Safaricom for example, hold data of all the transactions (P2P, P2B, B2P) that have ever been carried out since launching in 2007. This information would be particularly important for commercial banks who are now becoming more receptive to the role CRBs play in the credit chain. I think this will be an interesting space to watch. Will MNOs start ‘selling’ this data to CRBs or will they host it and charge on a ‘per-reference’ basis.

  • September 9th, 2010 at 12:45 pm, Felistas Coutinho ()

    Hi George-you are welcome to chat with our IT dept or even visit and see how its working.

    John thanks for the tip about working with the agents-we are actually looking at the opportunity to extend our loan services to the credit worthy agents-will see how it works.

    Sarah the way we are doing it is that the group meets and repays then they take the total payment and is sent once to the group account-this reduces the costs for each transaction but does not have the incentives that George mentioned above-so its given me some food for thought

  • October 11th, 2010 at 10:15 am, Evolution of Mobile Banking Services for the Unbanked Population – Part II | Microfinance Hub ()

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